Operations – Page 2 – Buildings for Sale in Toronto

October 25, 2023 Addy Saeed Comments Off Operations, Seller's Guide

Low Cap Rates and Rent Control in Ontario

When it comes to real estate investments in Ontario, one of the key metrics that investors often consider is the capitalization rate, commonly referred to as the cap rate. This metric is crucial in evaluating the potential return on investment for a particular property. A low cap rate can be a topic of concern for investors, as it implies a different risk-return profile for the investment. In the context of Ontario real estate, low cap rates generally indicate that the property’s income is insufficient in relation to its market value. In other words, it implies that the property is priced high compared to the income it generates. This can be attributed to several factors, such as high demand for real estate, low supply, and low interest rates, which push property values up and subsequently reduce the cap rates.

Ontario has rent control in the form of the Residential Tenancies Act, and it also impacts market cap rates for properties. These rules affect both landlords and tenants and have a substantial impact on the rental market. Rent control is a government policy that regulates how much a landlord can increase the rent for a residential property. The primary goal of rent control is to protect tenants from unreasonable rent hikes, ensuring that housing remains affordable and preventing widespread displacement due to excessive rental increases.

In Ontario, rent control is governed by the Residential Tenancies Act. Under these rules, rent control applies to most private rental units, including apartments, single and semi-detached houses, and units in residential complexes. However, not all rental properties are subject to rent control. For instance:

New Rental Units
Newly built units or rental properties that underwent significant renovations on or after November 15, 2018, are not subject to rent control.

Social and Affordable Housing
Rent control does not apply to housing units that receive government subsidies or are part of affordable housing programs.

Landlords in Ontario are subject to rent control regulations. This means they can’t always charge the current market rent if it’s rising faster than what the government allows for rent increases. In such cases, the legal rent they can charge might be lower than what the property could actually fetch in the market. This unutilized potential rent remains untapped until the tenant moves out, which can affect the property’s cap rate negatively/lower. Property sellers can use this lower rent as leverage to justify a lower cap rate, showcasing the gap between the current rent and the market rate. In a seller’s market, where property inventory is limited, buyers might be willing to accept a slightly lower cap rate to secure a property with untapped income potential. This dynamic highlights the importance of understanding the local rental market and its impact on property valuation in Ontario.

In the dynamic world of Ontario real estate, being aware of factors like capitalization rates and rent control is essential for both investors and tenants. Low cap rates can raise concerns, signalling property pricing is out of sync with income generation due to various market forces. On the other hand, rent control regulations are a vital aspect of maintaining affordable housing for tenants and ensuring that rent increases are fair and regulated. Whether you’re an investor looking for the right opportunity or a tenant seeking protection, understanding these elements is crucial for a balanced and informed approach to the Ontario real estate landscape. It’s all about finding the equilibrium where investors can thrive, and tenants can access affordable housing. So, whether you’re crunching the numbers as a property owner or looking for a rental home, these factors play a significant role in shaping the Ontario real estate experience.

If you would like more information about multi-family real estate investing or have any questions, please make sure to post a comment below or contact us.

October 25, 2023 Addy Saeed Comments Off Buyer's Guide, Operations, Seller's Guide

Capital Expenditures? What are they and How to calculate them?

When it comes to real estate investment in Canada, there’s a financial concept you need to grasp, and it is called “Capital Expenditures,” often referred to as “CapEx.” Think of CapEx as the expenses you’ll encounter to keep your property in good shape and improve its value over time. Understanding CapEx is vital. In this blog, we will break down Capital Expenditures, what they cover, and how to calculate them. By the end, you’ll know how to make better financial decisions, protect your investments, and ensure your real estate portfolio thrives for the long haul.

Capital Expenditures, often referred to as “CapEx,” represent the financial investments allocated to obtain, upgrade, or maintain a property, including equipment acquisition. These expenditures are categorized as CapEx if they involve new purchases or serve to extend the property’s lifespan, such as repairing the roof, installing a furnace, or repainting the building. Accurate assessment and consideration of both current and future CapEx are critical when determining a property’s value. Property owners must also incorporate CapEx into their rent calculations. Failing to account for or miscalculate CapEx could result in setting rent rates too low, leading to financial losses and negative cash flows for property owners.

Here are some of the most common capital expenditures in real estate:

New HVAC equipment
Major appliances
A complete overhaul of the plumbing
A complete overhaul of the electrical work
Bathroom remodels
Kitchen remodels
New roofs
New windows
New flooring
Balcony repairs
Siding
Paving or repaving a parking lot
Waterproofing of building or envelope
Additions to the property

Minor repairs and maintenance are typically not classified as capital expenses. For instance, replacing an entire roof is a capital expense, whereas repairing a small roof section falls into regular operating costs. The new roof prolongs the property’s lifespan, while minor repairs merely maintain its current usefulness. Similarly, purchasing a new furnace is a capital expense, while replacing furnace components is standard repair work. Upgrading an electrical panel is likely a capital expense, but replacing a light fixture is not.

Calculating Capital Expenditures is very easy. As an investor, it’s your responsibility to estimate the replacement timeline for major items. To create a capital expenditure budget, list these big-ticket items and their expected lifespans. Additionally, assess the status of each item in its useful life. This comprehensive list helps you plan for each expenditure. Once you’ve identified each expenditure, you can now use this simple formula to get the Capital Expenditure.

Let me give you a better example; for instance, a new roof costs approximately $50,000 and typically lasts 20 years. To calculate the annual CapEx, divide $50,000 (total replacement cost) by 20 years (expected lifespan) to get $2500 per year for roof-related expenditures. Apply this method to all significant maintenance items to estimate your yearly spending. If needed, break these expenses into monthly budgets for greater convenience.

Since this money isn’t being spent yearly, it sits in a reserve account and can be invested in vehicles such as GIC, where your capital is protected and income guaranteed. This way, you can also use compounding interest to minimize your cash outlay and maximize your IRR for every dollar within the investment.

In conclusion, Capital expenditures are among the largest, yet necessary expenses tied to investment properties. It’s true; you must invest money to reap rewards, and CapEx is no different. You can’t avoid them, so it’s wise to budget for them. Successfully managing a real estate business means not only accounting for these expenses but also budgeting for them wisely.

October 20, 2023 Addy Saeed Comments Off Buyer's Guide, Operations

Down payment requirements for Investing a Multi-Family Property

Unlocking the doors to multifamily property ownership is a significant financial milestone, but it often comes with a complex web of financial requirements. Among these, the down payment is a crucial piece of the puzzle. Whether you’re a seasoned real estate investor or a newcomer to the multifamily market, understanding the intricacies of down payment requirements is paramount. In this guide, we will delve into the world of underwriting multifamily properties, shedding light on the factors that influence down payment demands and offering expert insights to help you navigate this critical aspect of property investment.

Investing in multifamily real estate comes with distinct requirements depending on the type of mortgage, commercial or residential, available for your rental property. The rules differ whether you’re eyeing a property with five units or more or one with precisely four units. Before choosing what type of rental property you will invest in, you need to know the basic qualities to qualify for a rental property mortgage. Here are a few things that you need to consider:

You must have a credit score, ideally above 680
Proof of earnings whether you’re employed, run a business or earn commissions.
Low debt profile, indicating that you have sufficient extra money to cover your mortgage payments.
Proof that you have sufficient funds to cover the rental property’s down payment and closing costs. Some lenders may also require you to have a reserve fund for expenses as well.

If you recall, choosing the type of rental property dictates different requirements. A property may be classified as residential or commercial based on local zoning by-laws. A simple way to tell if a residential rental property requires a residential or commercial mortgage is by reviewing the number of units in the property. Commercial rental properties are buildings with six or more units, while properties with one to five units (depending on the lender) are categorized as residential. In underwriting a rental property, mortgage terms for commercial properties can be more challenging than those for residential rental properties. This post won’t dive into the complexities of commercial property mortgages; instead, we’ll concentrate on understanding the down payment requirements for residential rental properties. The primary factors that dictate your down payment amount for such properties are the property’s price and the number of units it contains. So, how much do you usually need to put down for residential rental properties? Typically, it falls within the range of 5% to 35%.

To be eligible for a down payment of less than 20%, you must have 1-4 units and be within a residential zoning, the purchase price for the building cannot exceed $1 million, and It must be owner-occupied (you must live in one of the units for at least 1 year).

For owner-occupied rental buildings with 1-4 units, minimum down payment requirements are as follows:

Owner-occupied with 1-2 units, the down payment is 5%.
Owner-occupied with 3-4 units, the down payment is 10%.

For investment properties, with six or more units or properties worth more than $1,000,000, a commercial mortgage with a minimum down payment of 20% is required. If you apply for a CMHC loan for such a property, you may find that CMHC has appraised your property for less than your purchase price, forcing some buyers to make larger down payments of up to 35% of the purchase price. Governmental programs are available for affordable housing projects that can help reduce downpayment for such properties to 5% while offering amortization of 40 to 50 years.

In conclusion, understanding the nuances of down payment requirements is crucial for successful multifamily property investments. As you embark on your real estate journey, the knowledge gained from this guide will empower you to make informed decisions, ensuring that your investment endeavours are financially sound and strategically advantageous.

If you would like more information about multi-family real estate investing or have any questions, please make sure to post a comment below or contact us.

October 20, 2023 Addy Saeed Comments Off Operations, Seller's Guide

What are Rental Surveys and Why are they important?

A Rental Survey can help you unlock the secrets to real estate success. Whether you’re in the process of buying a property or managing an existing one, these surveys are a must-have tool. It provides insights into your area’s current rental rates, trends, and occupancy levels. Plus, you’ll discover what attracts tenants the most, helping you boost your property’s value and returns. In a nutshell, market rental surveys are your key to maximizing your investment property’s potential.

These surveys are like treasure maps for real estate investors. It shows you what similar properties are charging for rent in your area and how your property stacks up against the competition. It can also help you establish the value of a property being considered for purchase and gauge the ability to increase your return. In short, a market rental survey will help you maximize your investment property’s value.

It is a valuable tool that holds the answers to your questions. Are your rents on point, too low, or have room for an increase? Curious about what your competitors are up to? A rental survey has your back. It’s not just about the current state of your property; it’s a crystal ball into the future of rental rates. Without these insights, your investment strategy is like navigating without a map—a risky venture. But this takes time. Yet, the rewards are substantial. You get a comprehensive understanding of your property’s standing, identify potential areas for improvement, and strategize on maximizing its value. It’s like having a powerful tool at your disposal, guiding you through the twists and turns of your real estate journey. And yes, while it requires quarterly updates, the investment in time is a small price to pay for staying ahead in the game.

October 13, 2023 Krystal Lee Ponte Comments Off Operations

What is a Cap Rate?

Investing in real estate can be a rewarding venture, but it comes with its own jargon that can confuse beginners. One such term you’ll often encounter is “Cap Rate.” But what exactly is the Cap Rate, and why is it crucial for investors? Let’s break it down in simple terms.

A Cap Rate is short for Capitalization Rate, a fundamental metric used in real estate to evaluate a property’s potential return on investment. In simpler terms, it’s a way to measure the profitability of a real estate investment.

Cap Rate is a percentage that indicates the potential return on an investment. A higher Cap Rate generally suggests a higher potential return but may also come with higher risk. Conversely, a lower Cap Rate may indicate a safer investment with lower returns.

Cap rate is calculated using a straightforward formula, it is equal to Net Operating Income (NOI) divided by the current market value of the asset. (see the photo below for the graphic illustration)

A situational example:

Addy is an investor looking to buy an investment property. From taking real estate courses, he remembers that the capitalization rate is an effective metric in evaluating real estate properties. Addy identifies and compares two properties with their annual income and market values:

After calculating the properties’ cap rates, Addy realizes that Property B has the highest cap rate of 10%.

Addy may base his purchase on the rate alone in a straightforward scenario. However, it is just one of many metrics that can be used to assess the return on commercial real estate property. While it provides a good estimate of a property’s potential return, it’s not the only metric to consider. In fact, various other metrics like the gross rent multiplier, internal rate of return, debt coverage ratio and many more should also be considered. So, when assessing a real estate opportunity, it’s wise to consider a combination of these metrics, not just the Cap Rate, to get a more comprehensive picture of its attractiveness.

Terminologies explained:

Net Operating Income (NOI): This is the total income generated by a property minus the operating expenses. It includes rental income but excludes mortgage payments and income taxes.
Current Market Value or Acquisition Cost: This represents the property’s current value or the cost at which it was acquired.

While Cap Rate provides a quick snapshot of a property’s potential return, it does have limitations. It doesn’t consider financing costs, future capital expenditures, or changes in property value over time. Investors should use the Cap Rate alongside other metrics for a comprehensive analysis.

In conclusion, Cap Rate is a valuable tool for real estate investors, offering a quick assessment of a property’s potential return on investment. However, it’s crucial to consider it in conjunction with other factors to make well-informed investment decisions. Whether you’re a seasoned investor or a novice exploring real estate, understanding Cap Rate is a key step in navigating the world of property investment.

October 12, 2023 Addy Saeed Comments Off Operations, Seller's Guide

What is turnover? How do you capture the cost?

According to the National Apartment Association, Turnover measures how many apartment units had residents move out during a 12-month period, shown as a percentage of the total rented units in the building. Essentially, it indicates the percentage of tenants who choose not to renew their leases.

For property managers and landlords, the tenant turnover rate is a crucial metric for planning their budget in advance. You can easily find your turnover rate by dividing the number of tenants who moved out in a year by the total number of tenants you had during that time.

This rate helps property managers estimate how many leases are likely to change each year, allowing them to plan and budget for renovations. It also gives insights into potential rent increases, helping them make informed decisions about their property’s financial outlook.

For example, A residential building has a total of 120 units and all occupied throughout the year of 2022 and the number of moveouts at the end of the year is 20. We simply calculate Turnover Rate using the illustration above. The calculation resulted with a 16% Turnover Rate.

Practical Steps for Long-Term Tenancies to Reduce Turnover:

If you’re grappling with a high turnover rate and eager to cut down on associated costs, consider implementing these effective strategies. Each approach has proven successful, and depending on your property type, one may be more suitable for your situation than the others.

Rigorous Tenant Screening:

Enhance your tenant screening process to minimize turnover. Engage a trustworthy tenant screening service to guide you in identifying ideal applicants. Opting for tenants with a track record of property upkeep can significantly decrease repair expenses. Additionally, selecting tenants with a propensity for longer stays contributes to lowering turnover rates and associated costs.

Enhance Lease Agreements:

Acknowledge that turnover is inevitable, but you can mitigate its financial impact by refining your lease agreements. Clearly outline terms related to move-out cleaning fees, security deposits, damages, and other potential expenses. Informing tenants about these details empowers them to return the property in good condition, ultimately saving you money during turnovers.

Cultivate Relationships and Encourage Renewals:

Building positive relationships with tenants fosters a sense of home, increasing the likelihood they’ll want to stay longer. Establish trust by demonstrating a genuine concern for their well-being. Keep open lines of communication about lease renewals, incorporating regular conversations into your management process. Consider offering reduced administrative rates for lease renewals to incentivize tenants to stay for extended periods.

By combining these strategies, you can create a tenant-centric approach that not only reduces turnover rates but also enhances the overall stability and profitability of your property management endeavors.

September 30, 2023 Addy Saeed Comments Off Buyer's Guide, Operations, Seller's Guide

What is ESG and why is it important to Investors?

ESG stands for Environmental, Social, and Governance. It refers to a set of standards used by investors and organizations to evaluate a company’s performance and behavior in various sustainability and ethical issues.

In recent years, there has been a notable shift in the investment landscape as environmental, social, and governance (ESG) factors have gained prominence. This shift has extended beyond traditional sectors and is now significantly impacting the world of commercial real estate investments. Investors, stakeholders, and even governments are placing increased importance on sustainable and responsible business practices, driving the integration of ESG considerations into various industries, including the lucrative realm of commercial real estate.

The 3 aspects of ESG are:

Environmental (E): This aspect focuses on a company’s impact on the environment. It involves assessing how the company manages its use of natural resources, its carbon footprint, its commitment to reducing greenhouse gas emissions, waste management practices, and adherence to environmental regulations. Additionally, it considers the company’s efforts towards sustainability and the development of environmentally friendly products and services.

Social (S): The social aspect looks at a company’s treatment of its employees, customers, suppliers, and communities where it operates. It evaluates factors such as labor practices, employee relations, diversity and inclusion, customer satisfaction, community engagement, and philanthropy. Companies that prioritize fair labor practices and have a positive social impact often score well in this category.

Governance (G): Governance refers to the company’s internal policies, leadership structure, and adherence to ethical standards. This includes evaluating the independence and expertise of the board of directors, executive compensation, transparency in financial reporting, and measures to prevent corruption and unethical practices.

ESG factors have gained significant importance for investors due to several reasons:

Risk management: ESG factors can help investors identify and mitigate potential risks associated with their investments. Environmental risks, such as climate change impacts or regulatory changes, can affect the value and longevity of a property. Social risks, like community relations or labor practices, can impact a property’s reputation and operational stability. Strong governance practices help ensure proper management and transparency, reducing the risk of fraud or mismanagement.

Long-term performance: Commercial real estate investments are often long-term endeavors. Considering ESG factors ensures that properties are built, managed, and operated with an eye toward long-term sustainability. This can lead to reduced operational costs, increased tenant satisfaction, and enhanced property value over time.

Market Demand: ESG considerations are becoming increasingly important to tenants, investors, and regulators. Investors who prioritize ESG factors are likely to attract more socially conscious tenants and may also experience increased demand from institutional investors who incorporate ESG criteria into their investment decisions.

Regulatory Compliance: Many regions and jurisdictions are implementing stricter environmental regulations and building codes. Investors who account for ESG factors are better positioned to comply with these regulations, avoiding potential fines or operational disruptions.

Stakeholder relations: Investors that prioritize ESG factors are likely to have better relations with their stakeholders, including customers, employees, suppliers, and regulators. This can lead to enhanced brand reputation and increased customer loyalty.

Enhanced Reputation: Incorporating ESG principles can improve a real estate investor’s reputation. Demonstrating commitment to environmental and social responsibility can lead to positive public relations and better community relationships.

Future-Proofing Investments: By considering ESG factors, investors can future-proof their investments against changing market dynamics. As sustainability practices become more mainstream, properties that lag behind in ESG performance could face lower demand and potentially depreciating value.

As a result of these benefits, ESG considerations have become an essential part of investment strategies for many investors who seek not only financial returns but also sustainable and socially responsible outcomes.

August 10, 2023 Krystal Lee Ponte Comments Off Operations

Canada Mortgage and Housing Corporation (CMHC)

The Canada Mortgage and Housing Corporation (CMHC) plays a pivotal role in shaping the country’s housing landscape. CMHC, a crown corporation founded in 1946, fosters secure homeownership, supports affordable housing development, and preserves the general health and stability of the Canadian housing market. It was initially founded following World War II to assist returning service members in finding homes, but over time, its mission has expanded to include providing access to housing in general. Millions of Canadians benefit from CMHC’s critical contributions to society, which include giving them a stable foundation. CMHC operates under the purview of the Government of Canada, and various legislative and regulatory frameworks guide its activities.

CMHC offers various services for home buyers, the government, and the housing sector. Its primary functions include providing mortgage loan insurance to potential homebuyers, bundling insured mortgages into securities, promoting affordable housing, research and market analysis, housing programs and initiatives, fostering sustainable housing practices, and addressing challenges in the housing market.

Mortgage Loan Insurance:

Some of CMHC’s core functions are discussed below:

One of CMHC’s core functions is providing mortgage loan insurance, which protects lenders if borrowers default on their loans. This insurance enables aspiring homeowners to purchase properties with down payments of as little as 5%, making homeownership more achievable for Canadians. CMHC fosters a stable and robust housing market by reducing the risk for lenders. CMHC has helped thousands of first-time homebuyers enter the real estate market by reducing the down payment required for purchasing a home. CMHC provides mortgage loan insurance for affordable and market rental housing, including standard rental housing, retirement housing, supportive housing, student housing, and single-room occupancy.

Affordable Housing Initiatives:

CMHC actively works to ensure that Canadians have access to affordable rental accommodations. CMHC supports the construction and renovation of affordable housing projects nationwide through various programs and funding initiatives. These initiatives generally target low and moderate-income households, seniors, students, and vulnerable populations and help alleviate housing affordability challenges.

Sustainable Housing Practices:

CMHC actively encourages green and energy-saving housing initiatives per international guidelines to combat climate change and promote sustainability. These initiatives enable the building of eco-friendly structures and their repair, which helps reduce carbon footprints and lower household utility costs.

Research and Market Analysis:

CMHC extensively researches housing market trends, demographics, and housing needs. By providing comprehensive data and analysis, CMHC aids in evidence-based policymaking and market regulation.

Through its various programs, research, and policy advocacy, CMHC continues to address the challenges of housing affordability, accessibility, and market functionality in today’s housing market.

Thanks for reading our blog and checking out our website. If you would like more information, please feel free to message us by clicking here or connecting with us via chat.

April 17, 2019 Addy Saeed Comments Off Operations

Looking for a large investment?

We’ve been working diligently on couple of projects including a large project with 70+ units. Please make sure to check out the projects we have listed on our website below

70+ Units 3 hours from Toronto @ 6.3% cap rate
6 Unit building in Scarborough
13 Unit building in Hamilton (Coming soon)
Office Building for Sale in Ajax, Ontario

We do have other larger portfolios coming soon too. If you’re interested please make sure to reach out and be part of our list.

May 10, 2018 Krystal Lee Ponte Comments Off Operations

Market Watch – April 2018

Toronto Real Estate Board President Tim Syrianos announced that Greater Toronto Area REALTORS® reported 7,792 sales through TREB’s MLS® System in April 2018. The average selling price was $804,584. On a year-over-year basis, sales were down by 32.1 per cent and the average selling price was down by 12.4 per cent.

The year-over-year change in the overall average selling price has been impacted by both changes in market conditions as well as changes in the type and price point of homes being purchased. This is especially clear at the higher end of the market. Detached home sales for $2 million or more accounted for 5.5 per cent of total detached sales in April 2018, versus 10 per cent in April 2017. The MLS® Home Price Index strips out the impact of changes in the mix of home sales from one year to the next. This is why the MLS® HPI Composite Benchmark was down by only 5.2 per cent year-over-year versus 12.4 per cent for the average price.

“While average selling prices have not climbed back to last year’s record peak, April’s price level represents a substantial gain over the past decade. Recent polling conducted for TREB by Ipsos tells us that the great majority of buyers are purchasing a home within which to live. This means these buyers are treating home ownership as a long-term investment. A strong and diverse labour market and continued population growth based on immigration should continue to underpin long-term home price appreciation,” said Mr. Syrianos.

“The comparison of this year’s sales and price figures to last year’s record peak masks the fact that market conditions should support moderate increases in home prices as we move through the second half of the year, particularly for condominium apartments and higher density low-rise home types. Once we are past the current policy-based volatility, home owners should expect to see the resumption of a moderate and sustained pace of price growth in line with a strong local economy and steady population growth,” said Jason Mercer, TREB’s Director of Market Analysis.

Full market watch report-April2018

Category: Operations